An article at the Spanish property portal Idealista.com explains there are four reasons to be optimistic about the Spanish property market, but also one big reason to be concerned.
Adaptation and translation of an article published by Idealista.com.
Official statistics show an evident stabilisation in the Spanish property market. Experts claim that demand for property will continue to rise and point out that it’s a good time to invest because of the attractive returns available. However, they’re wary of a possible rise in the Euribor base rate. They rule out this happening in the short term, but warn of the danger when it does happen.
In general terms, the experts and agents involved in the Spanish property market welcome the signs of optimism that are starting to appear. But some warn that all that glitters is not gold, and that it’s necessary to tread warily to avoid another property bubble like the previous one.
Experts such as Ignacio San Martín, head of BBVA Real Estate Research Studies or Juan Fernández-Aceytuno, managing director of ST Sociedad de Tasación (a valuation company), point out four factors that show the property sector is stabilising and even recovering:
1. Demand for property will continue to rise. San Martín claims that household income is growing in real terms, which will favour demand. Furthermore, household wealth has stabilised. As well as demand from Spaniards, demand from foreigners also needs to be taken into account. He believes that this year will see another record for purchases by foreigners.
2. Excess supply will decrease. Albeit slowly, the housing stock will gradually go down. The Spanish Ministry of Development estimated the excess new builds at 563,908 units at the end of 2013, while BBVA Research puts it at 450,000, of which it considers 30 per cent is unsellable. The bank expects this excess to no longer be a problem in 2016 and that it will start to be absorbed.
3. Price stabilisation, and even small price increases. BBVA is convinced that property prices are stabilising and even goes as far as predicting price rises for this year. San Martín points out that new growth in demand for property and price stabilisation will lead to better quality mortgage portfolios. “If the increase in demand carries with it an increase in loans and price stabilisation, this will improve the quality of credit,” he added.
4. Increase in mortgage approval. Mortgage loans are back, particularly for individual home buyers. Banks have a big incentive to make loans to increase their earnings from mortgage interest. The outstanding mortgage balance is currently falling, and will continue to do so over the next few months until banks speed up mortgage loan approval.
NOW THE CONCERN
1. Rising mortgage base rates. If there’s anything the sector should be worried about it’s the Euribor rate at a record low. The buyer thinking about getting a mortgage nowadays should bear in mind that the Euribor, the most-used reference for calculating mortgage loans, can only go up.
For example, Adicae is one of the organisations recommending not to take out a mortgage at the moment because “there’s a risk of default in the future”. The Euribor is low but as soon as it starts to rise it will make mortgage repayments high because differentials are still high compared to the pre-crisis period. “An interest rate higher than the Euribor plus 1 per cent differential means a huge extra expense. Above the Euribor+2 is dangerous,” says Manuel Pardos, president of Adicae.
That’s why some experts like Juan Villén, head of mortgages at Idealista, recommend a fixed-rate mortgage because you then know what you’re paying every month. At the start of the year, Kutxabank launched a mortgage with a fixed rate of 2.5 per cent.
Juan Fernández-Aceytuno claims that the only visible risk in the property sector is “a radical change in the international situation that could affect interest rates” and by extension, the Euribor, “which would be very harmful for the recovery of the property market”. However, he does not envisage this scenario in the short term. It’s unlikely but not impossible. Never forget that Euribor reached 5.4 per cent in 2008.
Related articles: What Risk Of Rising Interest Rates In The Eurozone? and Time Bomb Of Variable Rate Mortgages
Spanish Property Insight adapts and translates selected articles from the local press for the benefit of non-Spanish speakers.
This translation is based on the following article (in Spanish): cuatro motivos para ser positivos con la vivienda y uno para estar (muy) preocupado